Many firms have compensation plans that offer employees salary or bonuses in the form of options to purchase stock of the firm. To address stock dilution issues that may arise from such compensation plans, many firms employ stock repurchase programs to meet their stock needs. In another scenario, a firm might simply want to repurchase its own stock as the best use of its cash resources based on the market price of the stock. A firm might have surplus equity and choose to return that equity through a repurchase program based on buying a targeted amount of shares instead of paying a cash dividend, for example.
Typical stock repurchase programs do not account for volatility in the market price of the firm's stock, however, as it fluctuates over a fiscal period. When the firm's stock price is high on one trading day, the firm may repurchase too much stock at a premium level. When the firm's stock price is low on another trading day, the firm may not repurchase enough stock to take full advantage of the discounted price of the stock. Therefore, an improved, more dynamic stock repurchase strategy is needed to address the shortcomings of existing stock repurchase programs.